Feedback – I Bet You Didn’t Know It’s a Thing

January 22, 2012

The spontaneous emergence of oligarchies from egalitarian markets is a reoccuring fear to communists of all stripes and while the historical prompts of this fear can be easily shown to be horribly misinterpreted, the concern itself is not entirely without merit. Every so often a mathematical model comes along that bears some metaphorical resemblance to actual markets under certain conditions/assumptions and demonstrates a disturbing emergence of oligarchal tendencies. Markets, like ecosystems, are richly dynamic systems and the dangers exposed by toy models can speak to real ones, but they also tend to ignore emergent meta-complexities to the market that are in reality fundamental mechanisms of course-correction. Markets work precisely because they’re not simple and can evolve around problems by taking into account more context, moving into a higher-dimensional phase-space and generating new feedback loops to suppress lower level ones.

Today’s big hit is a cute little paper by a couple econophysicists in Bremen. They built a toy model where a whole bunch of limited agents each have two types of interactions: they decide a ‘trustworthiness’ value for themselves [0-1] as well as who all to contract with, and strategize to maximize the number of folks contracting with them times those folks’ trustworthiness and minimize their own trustworthiness in the contracts they initialize with others (each agent is forced to initiate said contracts/interactions with a set number of people per round). This asymmetry between initiated interactions and responsive interactions is intended to mirror a distinction between selling and buying and I’ll stick to that metaphor from here on out although it’s not unproblematic. Who to buy from in this model is decided by a straight comparison of prices while sellers set prices (quality/trustworthiness) by comparing the immediately preceding prices and resulting payoffs of their competitors. Long story short there were three major environmental variables, the set number of people the buyers were forced to buy from, a randomness factor localized to a single agent each iteration and the relative speed at which buyers updated their strategies versus sellers. The resulting system behavior revealed that this market had only two stable points: extreme competition (selling with next to no profit above marginal costs) or extreme cartelization (sellers get ridiculous profit).

No freaking duh. Said runaway cartelization is a direct result of the defining obligations imposed upon buyers. The number of sellers one’s obliged to sell to [K] is explicitly recognized as a big one, if the whole market is raising prices like crazy and one person deviates a little to undercut their competitors they don’t get appropriately flooded with payoffs from buyers because those buyers are obliged to buy from K sellers (of which the undercutter is just one). But most importantly K isn’t a strategic choice that can be set to 0 (through savings, austerity, DIY, etc) for extended periods by the buyers or lowered via model-external tradeoffs. Essentially what’s being modeled is forced consumption. It should be intuitively obvious that forced consumption will have a tendency to drive up prices as if sellers were operating as a cartel, if only because whatever’s artificially forcing buyers to buy no matter what IS usually in reality a cartel. The authors repeatedly emphasize gas prices as the best example and it doesn’t take unusual knowledge of history or political economy to recognize the role the state has plated in establishing the fixed demand there.

Predictably, coverage of this paper has largely played to the popular myth that free markets inexorably lead to oligarchies, which is a little sad because the best part of the paper is the quantitative analysis of response time in determining the critical point between competition and cartelization. How fast sellers and buyers pick up on market changes and adapt their strategies relative to one another is obviously of huge importance in the fight over what emerges. And this is actually a left-libertarian point: insofar as situations arise where smaller market actors are forced to consume rigidly they can leverage their well-known calculational advantages against larger more sluggish actors (usually the ones responsible for the situation). And in the other direction, where larger firms typify the position of buyer and individuals typify sellers (as with labor), such “cartelization” effects would be positive. Whether through solidarity unionism or more diffuse mechanisms like RateMyBoss.com, we want to drive them out of business after all.

Of course while this provides further impetus for the development of information technologies empowering consumers, there are obvious difficulties in practice for unrestrained market mechanisms alone when our existing “market” is already so far gone to cartelization (precarity, etc), but that’s what molotovs and pikes are for.